Morgan Stanley argues that the adoption of IFRS9 in January 2018 will result in additional provisioning need for Greek banks in the range of $7.6 billion.

“…our assessment of the quality (or 'staging') of bank exposures, estimation of expected loss and assumption of duration lead us to conclude that IFRS9 will drive a day 1 additional provisioning need for EEMEA banks of $17.4bn (7% of tangible book values). We see Greek banks as likely to be hardest hit and Turkish/Saudi Arabian banks as least affected,” MS says.

The bank believes that the impact of the IFRS9 is a key reason why Greek bank stocks are still trading at the bottom of their recent valuation range, “despite positive movements on the geopolitical side.” Also, among EEMEA banks, Greek banks are seen “as likely to be hardest hit,” ranging from -22% TBV at Piraeus to -8% at NBG

That said, MS still feels “the market is too bearish on them,”as “with Greek banks still trading on average at a 34% discount to their 1st August 2017 12-month forward P/TBV, we believe the market is pricing in a greater hit to equity than our model suggests. In fact, pricing in our day 1 IFRS9 equity impact assumption, we could see a 15% to 64% re-rating (at Alpha, Piraeus respectively) in these stocks once the market digests the book value hit. Furthermore, as it is likely the impact of IFRS9 will be phased in over 5 years, this would reduce the day 1 burden on capital further.”